For-profit college company agrees to pay $95.5 million to settle fraud allegations

For-profit college company agrees to pay $95.5 million to settle fraud allegations

Education Management Corporation was accused of using high-pressure tactics to enroll students in courses for which they were unqualified.

The for-profit education company that operates schools such as the Art Institutes, South University, Argosy University and Brown-Mackie College has agreed to pay $95.5 million to settle several whistleblower lawsuits that accused it of fraudulently recruiting students.

The Justice Department, which intervened in the litigation, says in a news release that Education Management Corp. (EDMC), the second-largest for-profit education company in the nation, will pay the settlement to resolve allegations that the company falsely certified that it was in compliance with Title IV of the Higher Education Act and parallel state statutes.

“This settlement should be a warning to other career colleges out there: We will not stand by while you profit illegally off of students and taxpayers," says U.S. Education Secretary Arne Duncan.

EDMC, which is headquartered in Pittsburgh, operates nationwide under four brands: the Art Institutes, South University, Argosy University and Brown-Mackie College. Those schools have an enrollment of more 100,000 students.

In a statement on its website, the company continues to assert that the allegations were without merit, but says "putting these matters behind us returns our focus to educating students."

In addition to paying $95.5 million, EDMC says the settlement calls for the company to provide prospective students with additional disclosures intended to provide more transparency during recruiting.

"Students interested in attending EDMC's post-secondary institutions will...receive an easy-to-read, single-page disclosure that details important information like graduate placement rate and student financial impact; be able to use an interactive tool which will personalize and assist in their higher-education decisions; receive no-cost orientation when they start as an undergraduate at one of EDMC's institutions; and, for undergraduate students, have the ability to withdraw with no tuition obligation up to seven days after their first class at on-campus schools, and up to 21 days after the start of the term at online programs (if they have less than 24 credits)," the company says.

The primary allegation in the lawsuits was that EDMC unlawfully recruited students by running a high-pressure boiler room in which admissions personnel were paid based purely on the number of students they enrolled. As a result, students were persuaded to enroll in programs for which they lacked the necessary skills and qualifications, and took on unsustainable debt to do so.

“Operating essentially as a recruitment mill, EDMC’s actions were not only a violation of federal law but also a violation of the trust placed in them by their students--including veterans and working parents--all at taxpayer expense," says U.S. Attorney General Loretta E. Lynch. "In the days ahead, we will continue working with our invaluable partners at the U.S. Department of Education, through initiatives like the inter-agency task force on for-profit education, to ensure that our nation’s aspiring learners are finding and gaining access to educational opportunities that are right for them.”

The $95.5 million settlement reflects EDMC’s financial condition and current ability to pay, the Justice Department says. The settlement will be shared among the federal government, the states involved in the litigation and the whistleblowers who filed the lawsuits.

The lawsuits contended that from 2003 to the present, EDMC falsely certified that it was complying with regulations in order to be eligible to receive the federal grant and loan dollars that compose the majority of the company's revenue.

In reality, the Justice Department contended, EDMC was running a high-pressure sales business and paid its recruiters based only on the number of students they enrolled.

"As a result of these allegedly false certifications, EDMC improperly enriched itself for more than 10 years with federal and state grant and loan dollars," the Justice Department says.

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